Contractors peering through the fog of the Agency Workers Regulations (AWR) looking for answers have hit upon at least one thing to hold on to amongst all the fluid ‘facts’: and that is that AWR is, in theory at least, unrelated to IR35.
Lawspeed’s Adrian Marlowe is clear that IR35 employment status tests for contractors are not relevant to AWR, and vice versa. As he told ContractorCalculator, “an individual supplied to work under the direction and supervision of a hirer is an agency worker… regardless of any hypothetical employment tests, such as those used to determine IR35 status.”
Here’s where we start to return to the quantum fog of AWR, but bear with me. Marlow explains that AWR is concerned with whether an individual is ‘supervised and directed’, whereas IR35 is concerned with whether a worker is ‘controlled’. These are different concepts and both can apply; or neither can apply; or one can when the other doesn’t.
That might sound complicated, but in a few sentences Marlowe has clarified one of the conundrums bedevilling the contracting sector since the Agency Workers Directive (AWD) was first adopted in December 2007:
- If you are outside of IR35, this in no way suggests that you might be out of scope of the AWR; and
- You can be within scope of AWR, yet be outside of IR35.
The main tests generally acknowledged and used to create the hypothetical contract used to determine IR35 status include substitution, control and mutuality of obligation. But these simply have no meaning in an AWR context.
Many contractors are supervised and directed. Just being asked ‘how are you getting on?’ and being asked to ‘work on this aspect of the project, please’ indicate direction and supervision. But this is a very long way from being controlled.
A contractor working via an agency could be comfortably outside IR35 and yet qualify for, and attempt to claim, equal treatment under AWR when it comes into force in October. And a contractor ‘directed and supervised’ by a client would be able to demand access to the same facilities as permanent employees, such as the canteen and childcare facilities, from day one of a new assignment. So, assuming the irreducible minimum required to demonstrate a contract of employment were not present, there’s not a thing HMRC could do about it.
Potentially every agency contractor could be within the scope of AWR, yet outside IR35. Were that to be the case, it would certainly present some challenges to firms that hire contractors and provide a wide range of facilities for their employees.
However, Marlowe has also confirmed that contractors genuinely in business and working through a personal service limited company could be outside the scope of AWR if the right contract terms are in place and agreed with the hirer. That’s because, if an agency worker is carrying on a profession or business undertaking, it is possible for them to be taken out of scope of the AWR.
Marlowe has based his views on legal advice. He explains: “Lawspeed sought counsel’s advice on the status of contractors working through personal service companies (PSCs)…The opinion supported our view that a PSC is a business undertaking, and the regulations allow individuals carrying on a business undertaking to be excluded.”
It appears that limited company contractors are not automatically excluded from AWR. However, it is likely that, by virtue of being a business undertaking and having the right agreements in place with their client or agency, genuine contractors should be able prove they are out of scope.
Marlowe’s caveat is that we won’t know for sure exactly how AWR will work until the regulations are tested in the courts in the months and years after they come into force on 1 October 2011. But for now, let’s enjoy the glimmer of clarity as the AWR’s quantum fog slowly begins to lift.